Invoice Factoring vs Invoice Discounting
Invoice Factoring vs Invoice Discounting
These are the two most common forms of invoice finance — how do you choose between them?
The major difference is credit control. You get credit control services included as part of invoice factoring, but it’s not included with discounting. Without credit control, the lender has less control over whether your customers will pay on time (or pay at all), which means they’re taking on more risk by advancing you cash based on these invoices. For this reason, discounting is traditionally used by bigger companies with higher turnover and creditworthy customers, whereas invoice factoring is commonly used by smaller firms. As the lender provides a collection service for factoring, this is usually slightly more expensive than invoice discounting.
Invoice discounting is often referred to as ‘confidential invoice discounting’. You’ll continue to deal with your customers and they won’t know you’re using a finance facility. Factoring, on the other hand, enables the finance provider to deal directly with your customers who will know you’re using invoice finance.
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